MENA Fund Manager from RK.pdf - Shariah Capital

M E N A
ISSUE29
www.menafm.com
FUND MANAGER
GOING
FOR GOLD
EXCLUSIVE
TO MENA FM
DSAM’s Ahmed Bin Sulayem
and Eric Meyer reveal their
game-changing Islamic
hedge fund strategy
WINNING FORMULA
The results of the Mena FM
Performance Awards
TESTING TIMES
Iran’s secretive fund
market is full of surprises
THE NEXT WAVE
Investors are not done
with the UAE says FPI

PROFILE
DSAM
Going for gold
Following years of groundbreaking work, DSAM has turned its Kauthar Gold Fund
into the first ever Shariah-compliant hedge fund available to retail clients. Ahmed
Bin Sulayem and Eric Meyer describe the painstaking process of taking it to market
By Kathryn Gaw
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WWW.MENAFM.COM FEBRUARY • 12

AHMED BIN SULAYEMexecutive
chairman, DMCC (left) and
ERIC MEYER, chairman and CEO,
Shariah Capital (right)
PROFILE
DSAM
The three-time winner of the Mena
Fund Manager Outstanding Performance
and Innovation Award, has just
become even more innovative. Following
the completion of a three-year
track record, Mena FM can reveal that the
Dubai Shariah Asset Management (DSAM)
run Kauthar Gold Fund is opening up to
retail investors for the first time, offering a
minimum investment of $5,000 and weekly
liquidity on the region’s only Shariah-compliant
gold-focused hedge fund.
Niche is hardly the word. And yet the fund
is already generating considerable interest
among the UAE’s IFA community, armed
with the backing of the influential Dubai
Multi Commodities Centre (DMCC) and an
average annual return since inception of
25.93% (as at 31 December 2011). At the
time of writing, Skandia International and
Mondiale had both agreed to distribute the
fund, and a number of similar agreements
were pending. DSAM is also targeting private
banks and wealth managers in the UAE
and beyond, with a view to making the investment
vehicle accessible to the man on
the street, on as many streets as possible.
“Based on our research, we understand
that our Kauthar Gold Fund is the only
Shariah-compliant gold equity fund in the
world,” says Ahmed Bin Sulayem, executive
chairman of the DMCC. “To the best of
our knowledge it is also the best performing
gold equity fund in the Mena region.
We have an award winning product managed
by one of the world’s best equity gold
managers, which we felt if offered to retail
investors would be unique.”
The retail market is frequently overlooked
in the Mena region, with most fund managers
erring towards the larger ticket investment
potential of HNWIs and institutions.
For a Mena-based hedge fund to be offering
this service is rarer still – the legal and religious
limitations on shorting is just one barrier
to popular uptake of an already “alternative”
asset class. DSAM has been finessing its
strategy for four years, with an emphasis on
strong back-office support, and top-notch
Shariah advice. And under the guidance of
Shariah scholar Shaykh Nizam Yaquby, the
DSAM team have found a solution.
“We had to go to a prime broker because
the hallmark of what we do is the ability
to hedge risk on a downside to create
some kind of short sell vehicle,” explains
Eric Meyer, chairman and CEO of Shariah
Capital. “Before we came into the picture,
no one else had created a Shariah-compliant
short sale solution and so we had
to change a ‘master securities loan’ (MSL)
agreement to a ‘master securities arboon’
(MSA) agreement. This MSA agreement
had to be handwritten and that cost millions
of dollars.
“You can’t sell something you don’t own
in Islamic finance, so we had to collaborate
with Barclays so they take the counter
party risk,” he adds. “They would allocate
a stock and they would sell it to us vs the
conventional borrow. From a securities
point of view, this is very complicated. And
can you imagine in today’s world asking
a bank to take counter party risk? I don’t
think anybody would do this today.”
Golden opportunity
Meyer established Shariah Capital in February
2006, with the idea of creating a Shariah-compliant
hedge fund platform. Shariah
Capital then formed a Cayman-based joint
venture with the DMCC in 2009, creating
DSAM. Meyer has a long track record
managing hedge funds in the US, at firms
such as Oak Hall Capital Advisors, where he
worked alongside John Hathaway, whose
firm is now considered to be the world’s
leading gold fund manager, with approxi-
What is DSAM?
“Our Kauthar
Gold Fund is the
only Shariahcompliant
gold
equity fund in
the world”
- Ahmed Bin Sulayem
Dubai Shariah Asset Management (DSAM) is a joint venture between Dubai Commodity
Asset Management (DCAM), a wholly-owned division of the Dubai Multi
Commodities Centre (DMCC), which owns 51% of the firm, and the New Yorkbased
Shariah Capital, which has a 49% stake. DSAM has a remit to develop and
manage Shariah-compliant investments focused on commodities, including its
flagship Kauthar Gold Fund, which was established on 31 January 2009 and is
managed by John Hathaway of Tocqueville Asset Management. Other funds include
the DSAM Kauthar Global Resources & Mining Fund, which is managed by
Dan Rice of Blackrock Capital Management, and the DSAM Kauthar Energy Fund,
managed by Russell Lucas of Lucas Capital Management.
TOP FIVE HOLDINGS OF DSAM KAUTHAR GOLD FUND (at end December 2011)
• Newmount Mining Corp
• Allied Nevada Gold Corp
• Gold Resource Corp
• Randgold Resources
• Barrick Gold Corp
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PROFILE
DSAM
“The
regulatory
environment
has been my
Waterloo”
- Eric Meyer
Dec-11
mately $10.9bn AUM. It is no surprise that
he was DSAM’s first choice to manage the
Kauthar Gold Fund.
Assembling a strong team was important
to Meyer, who specifically targeted
the best Shariah scholar (Yaquby), the
most versatile prime broker (Barclays), the
top performing gold hedge fund manager
(Hathaway) and leading Cayman-based
auditor (PwC), administrator (Citco) and
law firms (Walkers and K&L Gates). “I had
this crazy dream,” he says. “If I could do it
with all the biggest and the best, I could
build this unbelievable platform between
east and west. So I approached the DMCC
with this concept, and that’s when Ahmed
Bin Sulayem heard me out on my vision
and agreed to seed our DSAM funds.”
As the seed investor, the DMCC has
done very well out of the DSAM partnership.
From an initial investment of $50m,
the fund has generated consistently good
returns and despite a number of redemptions
over the past three years, and a 2011
YTD performance of -16.84%, it is still worth
approximately $40m today.
“Based on the interactions we have with
our member companies, customers and
other partners, we saw a growing demand
for access to commodity-centric Shariahcompliant
funds,” says Bin Sulayem. “In
partnership with DSAM, we knew that we
could build a world-class Shariah-compliant
fund business that would deliver returns
that would either match or succeed
conventional fund performance.”
In fact, Meyer believes that the Kauthar
Gold Fund will be attractive to both Muslim
and non-Muslim customers at a retail level.
”I don’t think there’s another long/short
gold fund in the world that offers weekly liquidity
here,” he says, adding that he hopes
to target the UAE’s local and ex-pat community
through the IFA agreements.
DSAM KAUTHAR GOLD FUND PERFORMANCE Source: DSAM
-11.37% -16.84% 27.02% 67.61% 25.93%
2011
2010
2009
Annual return since inception
“It will only be distributed in the UAE initially,”
he adds. “Then we’re going to focus
on the idea of finding another distribution
partner, whether it’s in Qatar, Kuwait, Bahrain,
Saudi Arabia, Malaysia or Indonesia.”
Long route to market
But getting to this stage has been a long
and frustrating process. As a result of the
DMCC partnership, the DSAM team were
keen to obtain a UAE distribution licence,
but this required a wait of more than a year,
while the application was processed at the
central bank. Once they had obtained the
UAE licence, the team had to wait another
three years to build up the minimum track
record required by the Cayman regulators.
“The regulatory environment has been my
Waterloo,” says Meyer. “The multi-jurisdictional
regulatory requirements have made
this project almost impossible to complete.”
Given the amount of time, work and, of
course, money, involved, it is no surprise
that other fund managers haven’t pursued a
similar strategy, and Meyer does not believe
that others will be in a hurry to follow suit.
“You could piggyback off what we have
done, but in today’s age if you can’t show a
return in a quarter or two, you’d be fired if
you brought this up to somebody right now,”
he says. “Timelines are a definite. We have
to work with multi-jurisdictional regulators.
We have to retain lawyers on an a la carte
basis here. I can’t even begin to say what
the cost would be or what timelines. Who in
today’s world would let you do that?”
So now that the fund has gone to market,
what is the next big challenge for
DSAM? Meyer is still set on rolling out his
Shariah-compliant hedge fund platform, Al
Safi, across the region. “I am determined
that we will expand our Shariah-compliant
platform that allows not just our funds but
other funds,” he says. “It would be Shariahcompliant
best of breed, because right now
a Shariah-compliant investor doesn’t have
all the breadth of funds to select from. I’d
love to have 20 funds on the platform.”
With the backing of the DMCC, and a
strong track record behind them, there is
every reason to believe that Mena will see
its first Shariah-compliant hedge fund platform
before long. Adds Bin Sulayem: “We
believe that there are more growth opportunities
and can see us very much at the
forefront of leading this growth.”
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